An Overview of Bankruptcy Discharge Injunction

Judges Gavel and Hammer On Table

A bankruptcy filing can be an important tool for those who want to escape the collapse of debt, which at times increases relentlessly. The Federal Bankruptcy Code provides a wide array of options for debt eradication, debt restructuring, and debt relief. For the details of legal options in OKC, a bankruptcy lawyer can help.

However, relief from bankruptcies would not be effective if creditors could resume collection efforts after the procedure is concluded. Many should be guarded against efforts by aggressive collectors to receive money from a former creditor, even though these efforts would be hollow.

This protection is provided in the Bankruptcy Code and is known as the order for discharge. This is a juridical term, but it explains its name. Once debts have been released from former collectors, the collection of former debts has been prohibited. If a court bans an action, it is referred to as an injunction under legal terms. This is why the first protection of those who have filed is known as an order for discharge. Violating an order may result in a serious court penalty.

Effects of the Case

An interesting turning point in discharge was what occurred in this case. In that case, the argument was whether a debt owner might take action against the former business of a bankruptcy owner. The reason for this decision was important because the original complaint against the company also included alter ego liability allegations.

Alter ego liability is a legal doctrine holding certain business owners responsible for the company's debts. The responsibility is only limited if it can be shown that for debt purposes, money management, etc. no effective difference exists between a company and the owner. In these cases, a judgment against a company is against the owner.

The original owner of the claim did not reject the charges against the company's owner for alter ego liability. The court, therefore, found that the order for discharge was violated and ordered the prosecution to be rejected for its liability by the former owner.

Creditor

What the Creditors Cannot Do

The order offers extensive and permanent protection from virtually all collection activities. Examples are some common:

  • Harassment including calls, letters etc.

  • Selling property to a collection agency.

  • Shifting to perfect a lien over discharged debt.

  • No modification of a loan if the debtor doesn’t reaffirm the mortgage loan.

To avoid Violation

According to the law, creditors must keep adequate procedures for avoiding a violation of the discharge order. Internal best practices should be formalized to provide for adequate protocols before any debt collection activity is started.

In the event, your bankruptcy lawyer in OKC notifies you of any problems with creditors harassing you when your case closes.  Before taking other measures such as bringing an adversary proceeding, it is important to inform the creditor. You need evidence that the creditor has been notified and can ensure that your lawyer does this.  You may also have other claims against the lender.

For advice and details of the process, you should hire a bankruptcy lawyer in OKC from Chris Mudd and Associates. Our proficient legal personnels will have your back.

** Disclaimer: This blog post does not constitute legal advice, nor does it create a client-attorney relationship.